2009 (11) TMI 513 - HC - Companies Law

Court quashes criminal complaints under Section 138, petitioner's resignation absolves vicarious liability.

The court quashed the criminal complaints under Section 138 of the Negotiable Instruments Act against the petitioner, who had resigned as a director ... Dishonour of cheques for insufficiency of funds in account - Held that:- Since there is no allegation that the cheques were issued and dishonoured with the consent or connivance of the petitioner or that issue and dishonour of the cheques was otherwise attributable to any neglect on his part, the case of the complainant as regards the petitioner is not covered even under sub-section (2) of section 141 of the Negotiable Instruments Act, 1881. Since a consultant is not even an officer of the company, he having been engaged only on contractual basis, it is doubtful whether he would be covered even under sub-section (2) of section 141 of the Negotiable Instruments Act. I, however, need not go into this aspect as there is no allegation in the complaint imputing the requisite consent, connivance or neglect to the petitioner. Thus no offence under section 141 of the Negotiable Instruments Act, read with section 138 thereof is made out against the petitioner on the basis of the complaints filed by the respondent Issues Involved:1. Quashing of Criminal Complaints under Section 138 of the Negotiable Instruments Act.2. Vicarious liability of the petitioner under Section 141 of the Negotiable Instruments Act.3. Resignation of the petitioner as a director and its effect on liability.4. Applicability of legal precedents and statutory interpretations.Issue-wise Detailed Analysis:1. Quashing of Criminal Complaints under Section 138 of the Negotiable Instruments Act:The petitioner sought to quash Criminal Complaint Nos. 1367 of 2008 and 1368 of 2008, filed by the respondent under Section 138 of the Negotiable Instruments Act, 1881. The complaints alleged that the cheques issued by the accused were dishonored due to 'funds insufficient,' leading to the initiation of criminal proceedings.2. Vicarious liability of the petitioner under Section 141 of the Negotiable Instruments Act:The respondent claimed that the petitioner, along with other accused, was responsible for the management and day-to-day affairs of the company, thus making him vicariously liable under Section 141 of the Negotiable Instruments Act. However, the petitioner argued that he had resigned as a director before the issuance of the cheques and was not responsible for the company's affairs at the relevant time.3. Resignation of the petitioner as a director and its effect on liability:The petitioner provided a certified copy of Form No. 32, showing his resignation as a director effective from 30-4-2003. The court accepted this document as authentic and conclusive evidence that the petitioner was not a director when the cheques were issued. The court referred to the case of Dr. (Mrs.) Sarla Kumar v. SREI International Finance Ltd., where the petitioner's resignation was accepted based on Form No. 32, leading to the quashing of the complaint.4. Applicability of legal precedents and statutory interpretations:The court examined several precedents, including K.K. Ahuja v. V.K. Vora and S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, to determine the requirements for establishing vicarious liability under Section 141. The court emphasized that a specific averment in the complaint is necessary to show how the accused was in charge of and responsible for the company's business. In this case, the complaint failed to disclose the petitioner's status in the company after his resignation and did not provide any evidence of his involvement in the issuance or dishonor of the cheques.The court concluded that the petitioner, having resigned as a director, could not be held vicariously liable under Section 141(1) of the Negotiable Instruments Act. Additionally, there were no allegations of consent, connivance, or negligence on the part of the petitioner to attract liability under Section 141(2). Consequently, the court quashed the complaints against the petitioner, allowing the prosecution of other accused persons to continue.